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Weekly market update 4 March – Dollar marched higher, commodity prices skyrocketed as crisis in Ukraine intensified

Weekly market update 4th March – Dollar marched higher, commodity prices skyrocketed as crisis in Ukraine intensified

1. The Dollar marched higher, benefiting from safe-haven bids to break above the 98.60 level for the first time since May of 2020, as the crisis in Ukraine continues to roil global markets. The Dollar could hold onto its gains, buoyed by expectations of more aggressive Fed actions, following a stronger-than-expected US jobs report. The American economy added 678K jobs in February 2022, the highest increase in seven months and above market forecasts of 400K. The tight labour market and rising inflation could push the Fed towards a more hawkish move, if inflation does not abate as anticipated. Recently, Fed Chair Powell pointed to a 25 basis point rate hike in March but opened the door for more aggressive moves to rein in inflation if necessary. Meanwhile, market sentiment was hammered by war headlines as the Dow Jones fell almost 200 points, marking a fourth straight weekly decline while the S&P 500 and the tech-heavy Nasdaq lost 0.8% and 1.7%, respectively.

2. Tensions in Ukraine saw the Euro weakened to a level not seen since May 2020, the largest weekly decline since March 2020 as the outlook of the bloc’s economy remains grim. With inflation in Europe surging to a record high of 5.8% in February and Russia sanctions boosting energy and commodity prices, it is unlikely that inflation would start to peak in early 2022 which put ECB policy makers in a tough spot. In the coming week, investors will be keeping a close watch on ECB’s monetary policy decision and macroeconomic projections amid the chaos. While ECB is likely to keep interest rates unchanged, investors will be looking for hints of a possible rate hike this year as the economy runs hotter, exacerbated by rising energy prices. Likewise, the Sterling extended its decline as the conflict in Ukraine intensified after Russian forces attacked Europe’s largest nuclear power plant, while the Ukrainian President reinforced the need for a no-fly zone in the country. In the latest developments, Prime Minister Boris Johnson told Ukrainian President Volodymyr Zelenskyy he would seek an emergency UN Security Council meeting on the matter. In the coming week, notable publications include the monthly GDP figures, industrial production, construction output and trade balance which could give insights to the progress of Britain’s economy, after it contracted for the first time in five months in December due to Omicron restrictions.

3. The Aussie strengthened against the greenback to above $0.73. Australia benefited from its status as a net energy exporter, buoyed by rising commodity and energy prices as the escalating conflict between Russia and Ukraine stoked fears of further supply disruptions. Meanwhile, RBA kept the cash rate unchanged at a record low of 0.1% this week, in line with market expectations and maintained that the Board is committed to retain highly supportive monetary conditions to achieve its employment and price stability objectives. In the coming week, investors will turn their attention to the business and consumer sentiment figures which should reflect the reopening of state borders and easing of COVID-19 restrictions.

4. The Loonie strengthened against the greenback after the Bank of Canada hiked interest rates by 25bps to 0.5% to curb rising inflation which reached a three-decade high. This was the first hike by the BoC since October 2018 and set the stage for further rate hikes ahead as the central bank indicated that it will use its monetary policy tools to return inflation to the 2% target. Meanwhile, Canada, being one of the world’s largest exporters of oil also benefited from soaring oil prices with the ongoing conflict in Ukraine. Oil prices posted their biggest weekly gain since May of 2020 as sanctions on Russia continue to exacerbate the supply shortages. EIA data showed both domestic crude oil and heating oil inventories shrank, with storage levels at key Cushing, Oklahoma crude hub at 2018 lows. Meanwhile, OPEC+ will stick to its existing agreement to boost output by 400,000 bpd for March. Elsewhere, gold prices rallied higher towards $1,970 an ounce and recorded a weekly gain as investors seek shelter in the safe-haven asset amid the uncertainty.

Salzworth Asset Management